1. Field of the Invention
The field of this invention includes all kinds of financial instruments that allow persons (individuals and organizations) to carry out savings, obtain credits or loans, and the corresponding account systems and methods of financial mathematics. Other financial instruments different from savings and credit instruments, for instance some derivatives such as futures and options, are not part of the field of this invention. Therefore the word “financial” in this document only refers to savings and credits.
This invention can be related to patents registered in Class 705 Subclasses 1, 16, 17, 18, 30, 33, 34, 35, 36R, 38, 39, 40, 41, 42, 43, 44, 45, Class 186 Subclass 37, Class 235 Subclasses 375, 379.
2. Description of the Related Art
Concepts of Financial Instruments
With regard to the capacity in integrating transactions into a single account, all financial instruments can be classified within of the Integrated Account Concept (IAC) or the Principal Operation Concept (POC). These concepts are defined to understand the differences between this invention and the existent financial instruments. These are similar to Open-End and Close-End credit concepts defined in the US Code of Federal Regulations in Title 12, but these also apply to savings instruments, and emphasize the capacity and flexibility in integrating several transactions in a single account, for which each one of these concepts has advantages and limitations.
The financial instruments designed under the Integrated Account Concept (IAC) are characterized by the fact that in their accounts several savings or credit transactions can be integrated into a single balance, as well as withdrawals of savings or payments of debt.
Typical IAC financial instruments are: savings accounts, credit cards, credit lines and revolving credits.
The financial instruments designed under the Principal Operation Concept (POC) are characterized by the fact that in their accounts one savings or credit principal transaction is entered into a single balance, and later, one or more withdrawals of savings or payments of debt are integrated into the account balance.
Typical POC financial instruments are: bills of exchange, time deposits, promissory notes, bonds, mortgage loans and certificates of deposit.
Depending on the particular conditions for each POC instrument, it is possible to carry out more financial transactions by endorsements, prepayments or refinancing. Therefore, POC instruments can also integrate more than one financial transaction; nevertheless, such a capacity to integrate multiple transactions has limitations which hinder the flexibility of this instrument.
IAC Financial Instruments
In general, IAC instruments are more modern than POC instruments, and when both are used in the same segment of the market, POC instruments tend to be substituted by IAC instruments. A good example of this is how credit cards have made bills of exchange obsolete in almost all commercial areas.
In summary, the main advantages of IAC over POC instruments are the following: a) IAC are more flexible than POC instruments, b) Operational costs per transaction are lower in IAC than in POC instruments, and c) IAC instruments allow the customer to be provided with a wider range of services than POC instruments.
In spite of their advantages, IAC instruments have some restrictions that have limited their use in some markets until now.
The first restriction is that the same nominal interest rate and interest cycle must be applied to all savings and credit transactions integrated into a single account balance.
As interest rates in the market can fluctuate at any time, all known IAC financial instruments allow the nominal interest rate applied to the balance (savings or debt) to vary according to the regulations of those instruments. There are IAC instruments that can change their nominal interest rate daily, monthly or quarterly. IAC instruments in which the nominal interest rate is kept fixed for longer is unusual.
The second restriction is that the same time conditions for payments and withdrawals must be applied to all savings and credit financial transactions integrated into a single account balance.
POC Financial Instruments
In spite of the outstanding advantages of the IAC instruments, in the long and medium-term markets the replacement of POC instruments has not been possible. In these markets, the POC instruments use fixed as well as adjustable nominal interest rates.
In summary, the main advantages of POC over IAC financial instruments are the following: a) They allow the nominal interest rate to be fixed for a long period of time, b) They allow different interest rates to be fixed per transaction according to market conditions, and c) They allow an array of payments to be defined (in amount and time) to pay for the principal.
Under certain conditions, POC instruments can also integrate more than one operation into a single account. In order to understand it, two different points of view will now be explained.
The first point of view to understand the integration in POC instruments is to treat all installments as operations similar to the principal, integrated into the account of the principal. So, the principal would be a credit until the account maturity date, and every installment would be considered a savings until the maturity date of the same account. When the account maturity date falls, the principal plus the interest is equal to the sum of each installment (savings) plus its interest. The result is the same whether every operation is carried out in separate accounts or in a single account. The result is also the same when the account maturity date is postponed for one or more cycles.
The second point of view to understand the integration in POC instruments is based on the fact that they can be integrated when the nominal interest rates, the account's maturity date and the payment profiles are identical. More precisely, when both payment profiles in the remaining term are identical but not necessarily for the same amounts. This operation is common in some mortgage loan accounts. In such a case a person can reduce his debt balance by carrying out an extraordinary amortization.